As the industry moves into a holiday season that it hopes will deliver a long-awaited rebound in sales and recovery from the recession, the deciding factor appears to be credit.
“Credit is very, very dangerous,” said Morris Szklarski, president, Kelsol Diamond Company, New York City. “I spend half my day calling up references to extend credit and the other half of the day answering phone calls from other wholesalers asking for credit references. Okay, maybe I exaggerate a little, but we’re all doing it. We’re all getting personal references. I try not to turn away business but I am being cautious, so I do turn away business. But I don’t want to turn away the good guys.”
Raphael Maidi, president, Maidi Corporation, New York City, agreed that “Credit is very tight and you can’t do business without it. Retailers are being very aggressive in asking for credit, especially to get them through the holiday season.” And do they get credit when they ask? “Yes, if they’re longtime customers. However, we are being more selective.”
According to Greg Telonis, vice president, Mr. Baguette, New York City, “There’s been a tightening of the belt all around. I am being scrutinized when I go to buy something as hard as I scrutinize those I sell to. Everyone is more leery of extending credit. With the difficulty of supply in the market, I have been getting requests from customers I haven’t heard from in a long time. Because of the market conditions, those customers have to be scrutinized credit-wise more than newer customers.”
Despite the risks in this volatile economy, wholesalers acknowledge that extending credit is essential to closing deals. “If you’re not in a consignment program now, come September or October, you will be in a consignment program, “ advised Telonis. “If you’re selling bridal jewelry, if you’re selling Hong Kong jewelry, if you’re selling colored jewelry, you can’t sell that on the road anymore. You can’t walk into a retailer and sell him four or five pieces for his case. Those goods have to go out on consignment.”
Retailers, Telonis goes on to say, “don’t want to waste their cash on more bridal, more colored stones, more pendants — just to put them in already packed cases.”
Hope for the Holidays
Wholesalers report that retailers are cautious, but still hopeful, that this holiday season will be a good one. With the price of rough going up, some retailers reportedly are beginning to buy for stock, the feeling being that “If you don’t have something in the store, you can’t sell it.”
Sam Nazarian, president, A&M Diamond and Jewelry, Los Angeles, expects calls to wholesalers for special stones to be down slightly during the upcoming holidays. “Retailers already have merchandise sitting in their own cases. If they get a call from a customer for a specific piece, they will try to push what they already have to clear out their own inventory. Only if the customer insists and the retailer doesn’t have the item, will they call us.”
Continuing Consolidation
One thing working in everyone’s favor is the increasing consolidation of the industry. “For every ten stores that are closing, two are opening,” pointed out Maidi. “Whoever has the staying power will get the business.”
There is a general consensus that panic selling is over and the players who remain are stronger. “Basically the desirable goods are in strong hands,” said Szklarski. “I don’t know many people who have to sell. So they are willing to hold on to their goods if the price is not right. The distressed goods — the goods sold off after Madoff and the economic collapse — are gone. Sales will always be made on desirable goods. And people who have the goods will make those sales.”
For Maidi, whose firm specializes in fancy color diamonds, supply is tight in all fancy colors. “Mines are producing at 30 percent to 40 percent of capacity, much less than two to three years ago. The big mining corporations such as the Russians, De Beers are very shrewd. They want to keep prices up and they know demand is not where it was, so they are controlling the supply to the market.”
Maidi predicted it will take five years to bring demand back to normal, “assuming we’re at the end of the second year. By normal, I am referring to 2005 and 2006. The peak years, 2007 and 2008, they weren’t typical years. The industry was thriving then.”
The Marketplace
• Bread-and-butter items in 50 points to 2 carats in round and princess cuts continue to be strong.
• High-end demand is increasing for 3 carats to 5 carats.
• Radiants are gaining strength from those customers who want something a little bit different from classic rounds.
• 1 carat to 1.49 carat in D-G in VSI2 to SI2 still sells.
• Demand is very soft for larger stones in certain fancy shapes, including emeralds, ovals, marquises and hearts.
• A stone’s Gemological Institute of America (GIA) cut grading is becoming increasingly important in closing sales.
Article from the Rapaport Magazine - September 2010. To subscribe click here.